PPF or FD: Which is better for NRI remittance?
What's the story
Non-Resident Indians (NRIs) often look for secure investment options to park their remittances. Public Provident Fund (PPF) and Fixed Deposits (FDs) are two popular choices that provide safety and decent returns. While both have their own benefits, the choice between PPF and FD can depend on the investment goals, risk appetite, and liquidity needs of the NRI. Here's a look at the pros and cons of PPF and FD for NRIs.
#1
Understanding PPF's long-term benefits
PPF is a long-term investment scheme with a 15-year lock-in period. It offers a fixed interest rate, which is usually higher than that of bank savings accounts. The interest earned is tax-free, making it an attractive option for those looking to save over the long term. However, NRIs should note that they can only open a PPF account if they maintain an Indian residency status.
#2
FD offers short-term liquidity
Fixed Deposits provide short-term liquidity as compared to PPF. NRIs can choose tenures ranging from seven days to 10 years, depending on their cash flow requirements. While FDs offer slightly lower interest rates than PPFs, they allow premature withdrawals (with penalties) in case of emergencies or unexpected expenses. This flexibility makes FDs an appealing option for those who may need access to funds sooner.
#3
Tax implications differ for NRIs
Tax implications also differ between PPF and FD accounts for NRIs. While interest earned on PPF accounts is exempt from tax in India, NRIs are liable to pay taxes on the interest earned through FD accounts above ₹10 lakh per financial year. This difference can affect overall returns significantly, depending on how much money you invest.
Tip 1
Risk factors involved in each option
Both PPF and FD are considered low-risk investment options as they are backed by government schemes or banks with high credit ratings. However, market fluctuations can impact other forms of deposits or investments linked to them outside these two options. Hence, it's important for investors to assess their risk tolerance before making any decisions regarding where to park their remitted funds.